Manage Inventory And Boost Profits

Furniture World MagazinePosted: 6/15/2004
By Dan Bolger

Very few retailers do an adequate job of managing their furniture inventory.

When asked why they have a warehouse, retailers quickly respond that it is to have stock goods available for prompt delivery to customers and to accumulate special orders from various vendors until a complete delivery to a customer can be made. Our audits show that very few retailers do an adequate job managing their furniture inventory and even fewer manage their accessory inventory. In this article I will demonstrate some simple and proven techniques that can help your bottom line and increase your potential to sell. Future articles will focus on other techniques to improve the warehouse, but getting inventory under control is step number one.

On the average, the typical furniture retailer has 25 per cent of his inventory dollars tied up in goods that are slow moving to dead. Some are colors and patterns that were "sure things" when the rep showed them to you at Market two years ago. Others are cancellations of special orders, returns or other problems where no one remembers the cause. This merchandise hurts you in several ways.

Unless you have unlimited funds, cash tied up in dead stock prevents you from ordering products that will sell quickly and generate profits. All things considered, most people will agree on an inventory carrying cost of at least 3 per cent per month. That shouldn't come as a surprise. It's the interest cost, building rent, insurance, damage, utilities, wasted labor moving stock around, etc. Ultim-ately you will have to face up to moving the merchandise at any cost or dumping it at 15 to 20 cents on the dollar.

Whether you are satisfied with inventory turning three, six or more times, every warehouse has some dogs cluttering up the place. Do you really know the dogs that are sitting in your warehouse? You may have an inventory report that shows activity, but you have to use this feature to reap the benefits. I contend that anything that is moving slower than your goal has to be looked at very carefully. The first question should be whether the merchandise is displayed. Time and time again we see situations where the merchandise hasn't been put in the showroom. It proves the point that nothing gets sold unless it is displayed and/or advertised.

Who is responsible for monitoring and managing the slow moving inventory at your business? Unless someone is overseeing this business problem, it doesn't get done. Someone has to accept the challenge to be sure this merchandise is getting frequent attention and it is being marketed through all available channels.

Even the best buyers tend to forget about slow moving items, preferring to ignore their mistakes and concentrate on the fast moving lines and colors. That's all the more reason to delegate this responsibility.

In a clean warehouse the old stock may not be readily apparent. When taking inventory it is a good idea to put a small colored decal on each piece. They are readily available at office supply stores. Use a different colored sticker at each inventory. As you walk around the warehouse periodically after inventory, you can easily see stock having a decal or two or more which needs to be liquidated.

Customer cancellations and returns take extra attention to detail. When possible I like to keep them in one special aisle and also assign them a special report in the inventory system. It is too easy to cram customer cancellations and returns back into a corner.

There are bonuses in cleaning up your inventory. The first is that labor productivity improves with significant reductions in damaged goods. You will also be able to push more volume through your existing warehouse, thus postponing the day when you have to invest in more space.

Bottom line, it is a better management decision to progressively mark down products and make the cash available to buy goods that will sell at strong margins than to postpone the inevitable.

Daniel Bolger of The Bolger Group helps companies achieve improved transportation, warehousing and logistics. Questions on this article or others by Dan Bolger can be directed to FURNITURE WORLD at dbolger@furninfo.com.

Contributing editor Dan Bolger of The Bolger Group helps companies achieve improved transportation, warehousing and logistics. See many other articles by Dan in the Operations Management article archives on the furninfo.com website. You can send inquiries on any aspect of transportation, warehousing or logistics issues to Dan Bolger care of Furniture World Magazine at dbolger@furninfo.com or call him direct at 740-503-8875.
Read other articles by Dan Bolger